Finance, Oil, and Climate in the Long 1990s

This paper shows how the oil industry passed through a revolution during the 1980s and 1990s to become more efficient and capable of exploiting new hydrocarbon reserves, undermining the embryonic effort to limit fossil fuel emissions. As production in the North Sea, the American West, and Alaska declined, by the late 1990s geologists raised the alarm that oil was reaching peak production—a boon, theoretically, in the fight against climate change. Oil companies across the global north, however, adopted neoliberal managerial, financial, and technological innovations to create a low-priced oil regime. Where state-owned Middle Eastern oil companies dominated the hydrocarbon market through long-term contracts during the 1970s and early 1980s, in 1983 short-term spot and futures markets emerged at NYMEX, London, and Rotterdam. After the countershock of 1986 cratered the price of energy, these new exchanges created a liquid, global market for petroleum, weakening OPEC’s power and eroding energy security as a concern by transforming the provision of energy from a matter of politics into a matter of markets. Transnational oil companies collaborated with JP Morgan and Goldman Sachs to become petroleum trading companies, pursuing cost-cutting, layoffs, decentralization, and performance-based management. They outsourced segments of their production process to specialized service companies, which developed new computer modeling, subsurface visualization, and horizontal drilling to reach untapped reserves. Meanwhile, the 1997 East Asian financial crisis caused a bloodletting in the oil industry as prices plummeted. In response, the world’s largest oil companies merged into “supermajors” that could mobilize immense sums of capital, moving into natural gas and electricity to become integrated energy companies. The long 1990s thus created a reorganized oil industry that was leaner, more efficient, and better able to deploy the massive investment needed for complex projects that would prologue the era of abundant fossil fuels into the 21st century.